What happened
Shares of Conagra Brands (CAG 1.34%), a leading packaged food company that owns a catalog of well-known names such as Duncan Hines, Orville Redenbacher's, and Healthy Choice, soared 19% Thursday morning after it released strong fiscal second-quarter 2020 results that topped both top- and bottom-line estimates.
So what
For the period, which ended Nov. 24, net sales jumped 18.3% to $2.82 billion, just topping analysts' forecast for $2.80 billion. Adjusted earnings per share checked in at $0.63, easily topping analysts' consensus estimate of $0.57.
While the surge in Conagra's top-line appears impressive, it's important to break it down for better understanding. There was a 19.6% increase in net sales from the acquisition of Pinnacle, a 2.9% decrease due to its divestiture of a number of businesses, and a 1.6% increase in organic net sales. The organic sales increase, likely the most important metric for investors, was driven by 1% volume growth and a favorable 0.6% increase in price/mix.
Image source: Getty Images.
"Our second quarter results reflect solid execution in applying the Conagra Way playbook across our portfolio, said Sean Connolly, president and chief executive officer of Conagra Brands, in a press release. "We maintained our strong momentum in frozen and snacks." In addition, the Hunt's and Chef Boyardee brands showed sequential improvements, and management noted solid progress integrating Pinnacle and developing plans to optimize and improve its acquired brands. In fact, Conagra even raised its target for annual cost synergies from the Pinnacle acquisition by the end of fiscal 2022 from $285 million to $305 million.
Now what
Also worth noting, Conagra cuts its full-year revenue growth guidance from a 13.5% to 14% range to a 12.4% to 12.9% range. That reduction was related to its divestiture of businesses – but the updated forecast still exceeded analysts' consensus estimate of 12.3% growth. Likewise, Conagra's updated full-year earnings guidance is now $2.07 to $2.17 per share, a penny lower on each end of the prior guidance range, but still likely to outpace analysts' estimates of $2.09 per share.
Despite the competitiveness of the consumer staples industry, investors should look for Conagra's momentum to continue; management anticipates that the investments it made during the first half of fiscal 2020 should deliver a boost during the second half.
